Deborah Ball published an exclusive interview with Italy’s Minister of Economic Development, Flavio Zanonato, on Oct. 29 in which he defended Prime Minister Enrico Letta against claims he was doing too little to tackle the country’s economic problems and was wrong to pump more money into near-bankrupt flag-carrying airline Alitalia.

The interview came at a key moment for the Italian government as it moves to stamp its authority on a fragile coalition after Mr. Letta scored a convincing victory against opponents who threatened to topple him.

Since he won a vote of confidence investors have been keen to see signs that the government will now move quickly to bolster the country’s struggling economy.

Mr. Zanonato defended the move to shore up Alitalia’s finances as a way to help it join with a stronger foreign partner.

This is how the full story appeared on DJX:

By Deborah Ball

ROME–Italy’s Minister of Economic Development, Flavio Zanonato, defended the record of Prime Minister Enrico Letta’s government, pushing back at critics who say the young government hasn’t been ambitious enough in tackling Italy’s myriad economic problems and has sent the wrong signal to foreign investors by pumping more money into near-bankrupt Alitalia SpA.

Mr. Zanonato also said the government will launch a series of measures aimed at helping foreign companies invest in Italy, raising the number of start-ups and freeing more credit for small companies

Mr. Letta has come under fire this month after presenting a budget law that was seen as too timid in cutting Italy’s heavy tax burden. The government has also been criticized for its handling of Alitalia after recruiting the Italian postal system to make a capital injection of 75 million euros ($103.2 million) in the near-bankrupt airline to keep it flying. Critics say the move harks back to years of damaging interference in companies by Italy’s political class.

But in an interview, Mr. Zanonato defended the move to shore up Alitalia’s finances as a way to help it join with a stronger foreign partner. He also emphasized new measures the government is pushing, aimed at attracting foreign investors, getting financing to flow to small businesses and encouraging companies to hire young people.

“It’s not that we don’t see the problems,” he said in an interview. “We are working on all of them. We can argue about whether what we have done is sufficient, but no one can say that we haven’t recognized the issues.”

Italy is in the midst of a profound transformation, as a torrid financial crisis has given way to the worst economic downturn since World War II. Italy’s per capita gross domestic product has grown the least of any OCED country over the last decade as it has struggled to adjust to the strictures of the European single currency. The recession has exposed many of the Italian economy’s shortcomings, such as the low productivity of its work force, the small size of its companies, and exporters that are focused on low-value-added goods and slower-growth markets.

Italy’s poor growth has raised worries among European policy makers, who are concerned that stagnation in the euro zone’s third-largest economy and political instability could weigh on the currency union for some time.

Even as other crisis-stricken Southern European countries like Spain and even Greece begin to reform their economies and attract foreign investors, many multinationals are still shunning Italy. Firms are deterred by its low growth and the frustrations of doing business in a country where it can easily take a decade to secure permits to start a new activity. Over the last five years, Italy attracted an average of just $12 billion of foreign investment a year, compared with $37 billion for France and $66 billion for the U.K.

“We’ve been incapable of reacting to the extraordinary geopolitical, technological and demographic changes of the last 25 years,” Ignazio Visco, governor of the Bank of Italy, said in a major speech last May.

Mr. Zanonato responded indirectly to the Bank of Italy chief saying that “if the problems in Italy are fruit of a series of mistaken choices over the last 25 years, you can’t expect us to fix everything in the space of five months.”

The minister highlighted policies such as tax breaks for companies that hire young people, a beefed-up fund that guarantees loans to small companies and measures that will help lower energy costs, which are among the highest in Europe and make it hard for Italian companies to compete. The government is also launching a host of measures to make it easier for foreign investors to invest in Italy, such as setting up a special desk at the Italian tax authority to give multinationals–whose complex tax planning is a frequent target of audits–official feedback on tax arrangements. Other incentives are aimed at raising Italy’s very low level of new start-ups, with 1,300 new companies already benefiting from the arrangement.

Mr. Zanonato said the government hopes a critical vote of confidence won by government earlier this month will allow it to push through more ambitious reforms. Many expect Mr. Letta to remain in power until at least 2015.

The political instability “has forced us into this stop and go during these months,” he said. “But the willingness (to do more) is there.”

Mr. Zanonato defended the government’s move to bolster Alitalia enough to convince a foreign airline to absorb the Italian carrier into an international alliance. Alitalia hasn’t reported a profit since it was saved from bankruptcy in 2008 and given a EUR1 billion injection of new cash from shareholders. Now it is near insolvency once again, staggering under EUR1 billion in debt and suffering heavy losses. Earlier this month, Alitalia’s shareholders agreed, in principle, to sink another EUR300 million into the airline in a capital increase, but they have until Nov. 16 to actually raise the money.

Some have criticized Mr. Letta for using the postal service to try to save an airline that has benefited from years of regulation aimed at staving off competition, sucked money from the state coffers and still remains deeply uncompetitive. Mr. Zanonato defended the move as the only way to keep control of a situation that risks putting thousands out of work.

“We found a company that was entirely private but that has a huge impact on the Italian transport system and that heavily impacts national interests,” he said. “We have worked to put the company in a position to make its choices on the free market.”

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